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What are the pros and cons of listing OTC as a 'pink sheet' company? Also what is the process?

Atul  Madahar's Profile

otc listing pros and consWe're a small but growing company looking for a modest financing of $500K-$1M. We are familiar with VC-PE financing options, but think that OTC might be a better path.


Ted Monohon
Title: VP -Finance / Controller
Company: Fantex
(VP -Finance / Controller, Fantex) |

This is probably not a good option for you if you are looking at only 1MM in financing. In order to list on the OTC, you need to be a public company and comply with all the SEC registration (1933 Act) and compliance requirements (1934 Act). This process is probably more expensive than the capital you want to raise.

You might be better served from an angel investor or various crowd funding options for that level of investment. Good luck.

Kurt Kipfer
Title: CFO
Company: International Medical Group, Inc.
(CFO, International Medical Group, Inc.) |

I am curious. What is the general consensus for funding range where going the OTC starts to make financial sense. Is it in xs of $5MM?

Robert Honeyman
Title: CFO
Company: Advanced Predictive Analytics
(CFO, Advanced Predictive Analytics) |

OTC should only be seen as the final, bad result of a successful business failing. It should never be seen as the starting point for a business that hopes to grow.

I'm involved in a project that will start with a reverse merger into an inactive public entity. This is the only time in my career that this even comes close to making sense. Why? Because a major bank has committed massive amounts of debt funding with one of the conditions being that the project must trade on a major exchange.

Thus, my objections are pretty much overcome.

1. Is there enough cash to cover all the costs? Check. I can pay for the additional compliance costs without sweating.
2. Is the project likely to pick up support from a major institution? Check. I don't have to worry about being owned by the pump 'n dump guys.
3. When will the project meet the minimum listing requirements for a respectable stock? Check. Should happen within the first six months.

Every other time I've been pitched on a reverse merger, I've run away. And with good cause. The only guy benefitting from a reverse merger is the guy making commission on the reverse merger transaction.

Topic Expert
Edward Abbati
Title: Vice President of Finance
Company: Location Labs
LinkedIn Profile
(Vice President of Finance, Location Labs) |

My experience in being list on the OTC has not been a good one for the following reasons:

1. Market reputation is bad
2. Trying to align good investors for a additional rounds is difficult...VC will ignore you.
3. Reporting requirement are much more stringent that VC/PE financing.
4. They are limited liquidity in that market.

Reed Kingston
Title: Managing Director
Company: StrataFusion
(Managing Director, StrataFusion) |

Kurt, I'm not sure that's the right question to ask. As Ted points out, it's less about the costs of going public, and more about the ongoing costs of being public.

Maybe better to ask "how big (profitable, etc.) does one have to be for it to makes sense..."

Topic Expert
Al Cochran
Title: CFO
Company: Amendia, Inc. and Vivex Biomedical, Inc.
LinkedIn Profile
(CFO, Amendia, Inc. and Vivex Biomedical, Inc.) |

I concur with the viewpoints expressed so far. Particularly with the concept that raising equity capital is an expensive route to follow and that the OTC may not fit your needs depending on what your long-term strategy is.

Once management and the board decide that going public is the right decision, I do offer this piece of advice: always remember, it is your process and if you don't control it, the bankers surely will. Be sure you have experienced legal representation as issuer's counsel; can make a world of difference.

Topic Expert
Bob Stenz
Title: Controller
Company: Silicon Valley start-up
(Controller, Silicon Valley start-up) |

Check out the Jumpstart Our Business Startups Act (April 2012) which increased the minimum number of shareholders that would require SEC registration as well as enabling internet funding sources without SEC registration. Google or try Wikipedia for more info. ( This doesn't get you listed on OTC but opens the door to getting investors without SEC overhead.

Bennet Tchaikovsky
Title: Chief Financial Officer
Company: Worldwide Officers, Inc.
(Chief Financial Officer, Worldwide Officers, Inc.) |

I agree with the viewpoints stated and would take this one step further. Most companies that are going onto the OTC Markets initially will be through a "reverse merger" that may be a condition of receiving the financing from the VC-PE group. Due to the abusive practices found with reverse merged companies, the senior exchanges (NASDAQ, NYSE) enacted specific rules designed to add further scrutiny to those companies that complete a reverse merger:

The senior exchanges do not like reversed merged companies that are applying (I'm not sure if one has even listed since the rules were enacted) and would rather have companies use the JOBS Act to go public.

Steve Bennet
Title: Start-up CFO, Angel Investor and Profess..
Company: Bodega Partners
(Start-up CFO, Angel Investor and Professor, Bodega Partners) |

I did a reverse merger in to a public shell for a tech startup about 15 years ago. I tried to talk CEO out of it, but wasn't successful. On the positive side, was an interesting experience and one more notch in my CFO belt. On the negative side, very little liquidity, hard to get analyst coverage, SEC reporting requirements without the windfall of an IPO, and working with promoters and IR people that require you to take a shower immediately after meeting with them.

Bottom line: if you can't raise capital through other channels, may want to rethink business.

Robert Honeyman
Title: CFO
Company: Advanced Predictive Analytics
(CFO, Advanced Predictive Analytics) |

@Atul: oy!


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